International Journal of Management Sciences and Business Research
Volume 1, Issue 10 -2012- ISSN (2226-8235)
The Effect of Culture on Accounting System’s in China
1)
Thian Cheng Lim
BEM department, Xi’an Jiaotong-Liverpool University
111 Ren’ai Road, Dushu Lake Higher Education Town, Suzhou Industrial Park
215123, China
2)
Xiu Yun Lim
National University of Singapore
3)
Riuyang Chai
Bentley University
145 Forest Street, Waltham, Boston MA 02451 USA
4)
Dan Zhao
Xi’an Jiaotong-Liverpool University
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International Journal of Management Sciences and Business Research
Volume 1, Issue 10 -2012- ISSN (2226-8235)
Abstract
This paper investigates the effect of
cultural influences on the international
practice of accounting. We critique the
contemporary research methodologies
used to test this theory and proposed our
methodology. We proposed to perform an
empirical test using China firms. The
cultural
dimensions
Avoidance,
of
Uncertainty
Individualism,
Power
Distance, Masculinity and Long term
Orientation is compared between USA
and China accountants to discover
whether Chinese accountants will exhibit
stronger conservatism and secrecy when
compared to US counterparts. National
culture has a significant effect on the
judgments
of
accountant
when
I.
Introduction
In 1979 China changed its economic
system from centrally planned to market
economy. The State Council changed all
accounting regulations and systems to
facilitate the development of China new
legal and accounting system (Chow,
2001). The accounting system, culture
and education back then were vastly
different from the West. Adherence to
international standards, developed by the
International
Accounting
Standards
Board (IASB) and the International
Auditing and Assurance Standards Board
(IAASB), can lead to greater economic
expansion. (Wong, 2004)
interpreting and applying selected IFRSs
that contain uncertainty expressions. The
The inconsistent accounting practices
issue of cultural influence in explaining
found in different parts of the world
behaviour in social systems has been
have
recognised for some time, however, its
researchers (Mueller, 1965; Lin and
impact on accounting as a social system
Wang,
is a more recent field of study.
Globalization of businesses and markets
always
demanded
Keywords:
uncertainty
Accounting
convergence,
expressions,
culture, accounting judgments
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education,
concerned
2001;
a
accounting
Gujarathi,
financial
2008).
reporting
framework that abides to international
accepted
auditing
standards
(Wong,
2004). More than one hundred countries
throughout the world have adopted the
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International Journal of Management Sciences and Business Research
Volume 1, Issue 10 -2012- ISSN (2226-8235)
international accounting standards issued
by the IASB.
China should complete its transition to a
market economy through fiscal and
However,
global
acceptance
of
international accounting and auditing
financial sector reforms (World Bank,
2012). The current financial reporting
standards need not necessarily translate
system of China has not satisfied the
into
of
accounting information users’ demand
practices
for the financial report (Dai, 2010). He
(IASCF, 2006). It may result in the
highlighted three deficiencies: lacking in
a
reduction
accounting
and
in
diversity
auditing
uniformity of regulations, but it does not
the relativity, lacking in the timeliness,
ensure that there will be uniformity in
and lacking in the reliability. The
the application of these standards or de
problem was echoed by (McGee &
facto uniformity (Tay and Parker, 1990).
Preobragenskaya, 2003) which studied
Russia’s harmonization of its national
accounting standard to
International
Environmental factors such as legal
Financial Reporting Standards (IFRS).
systems, sources of external finance,
The conflicts in regulatory regimes,
taxation
reporting
systems,
professional
standards,
in addition to
accounting bodies, historical inflation,
educational and historic differences in
economic and
reporting structures between China and
explain
political events can
international
differences
in
accounting practices. Culture is on top of
the list of factors that can influence
international accounting practice and
financial reporting (Nobes and Parker,
2004).Regardless
government
management
of
changes
regimes,
styles
in
in
economic
China
the
the developed world is a symptom of
cultural difference.
This paper review existing literature on
accounting
sub-culture
that
could
explain the effect of culture on the
interpretations
and
judgments
of
accountants.
influence of culture on accounting, its
basic
characteristics
have
survived
(Solas & Ayhan, 2007).
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International Journal of Management Sciences and Business Research
II.
Definition of Culture & Value
Volume 1, Issue 10 -2012- ISSN (2226-8235)
Culture is, therefore, a representation of
Culture ‘the collective programming of
the shared values, attitudes, beliefs and
the
behaviours among a group of people.
mind
which
distinguishes
the
members of one human group from
According to Smith and Schwartz
another’ (Hofstede, 1980). Each human
(1997), values are a central element in
group shares its own societal norms,
the study of culture. Schwartz and
consisting of common characteristics,
Bilsky (1987) provided a conceptual
such as a value system which is adopted
definition of values as beliefs about
by the majority of constituents.
desirable goals that guide a person’s
behaviour. These goals are ordered in
Values are defined by Hofstede (1980) as
relative importance and transcend
‘a broad tendency to prefer certain states
specific situations.
of affairs over others’. It is these
definitions
that
have
been
adopted
in
accounting
develop
a
cultural
investigate
widely
research
to
framework
to
international
accounting
differences.
III.
Literature Review
Hofstede’s (1980) work on culture
represents the most extensive research
on national cultural differences to date
Culture is a dynamic system of rules,
(Doupnik & Tsakumis, 2004). Since then
explicit and implicit, established by
cross-cultural accounting studies have
groups in order to ensure their survival,
flourished and built on the well-known
involving attitudes, values, beliefs,
five-dimension model (Hofstede 1980;
norms, and behaviours, shared by a
1991; 2001).
group but harboured differently by each
specific unit within the group,
Violet argued that accounting is a ‘socio-
communicated across generations,
technological activity’ that involved
relatively stable but with the potential to
interaction between both human and
change across time. (Matsumoto &
non-human resources (Violet, 1983).
Juang, 2004)
Violet claims that accounting cannot be
considered culture-free.
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International Journal of Management Sciences and Business Research
Volume 1, Issue 10 -2012- ISSN (2226-8235)
Europe are characterized by relatively
Gray (1988) is the framework most often
high levels of uncertainty avoidance
used
where rules or ‘social codes’ tend to
to
relate
accounting
cultural
systems
values
(Perera,
to
1989;
Gerhady, 1990; Fechner and Kilgore,
shape behavior, while the opposite
applies in Anglo-American countries.
1994; Baydoun and Willett, 1995). Gray
argues
that the
value systems of
Culture is described by Salter and
accountants will be derived and related
Niswander (1995) as having a pervasive
to societal values, Cultural dimension of
influence on accounting practice through
Individualism,
the norms and values held by members
Power Distance,
of the accounting system. Different
Uncertainty Avoidance and
cultural groups in accounting would
result in different interpretations and
Masculinity
judgments of accounting relationships
The values of accounting subculture will
and concepts (Belkaoui & Picur, 1991).
in turn, it is believed, impact on the
This cultural relativism of accounting
development
(Belkaoui, 1995) would influence the
of
the
respective
accounting systems at the national level.
consistent interpretations and judgments
in the applications of accounting and
According to Perera (1989), human
auditing standards.
element of accounting is influenced by
environmental
factors
particularly
Zarzeski (1996) provides “evidence” that
culture. Perera (1989) considered both
supports a view that entities located in
Hofstede’s
countries classified as relatively more
cultural dimensions
and
Gray’s accounting sub cultural value
individualistic
dimensions and uses them to explain
relatively less in terms of UA provide
apparent
differences
accounting
greater levels of disclosure. Zarzeski
practices
adopted
continental
also considered issues associated with
European countries and Anglo-American
international profile and found that those
countries. Many countries in continental
entities
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in
in
with
and
a
masculine
relatively
and
higher
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International Journal of Management Sciences and Business Research
international
profile
tend
to
less
Volume 1, Issue 10 -2012- ISSN (2226-8235)
and auditing practices.
secretive than other entities.
Finch (2009) studied the impact of
Baydoun and Willett (1995) used the
culture on accounting practice and
Hofstede-Gray theory to investigate the
financial reporting. He said “Gray’s
use of the French United Accounting
(1988)
System (which was ranked lowly in
expectations about how culture may
terms of Professionalism and highly in
influence accounting practice at a
terms of Uniformity as well as being
national
considered as quite conservative) in
research into this question has not
Lebanon.
was
demonstrated satisfactorily any proof to
considered to rank lower in terms of UA
support the hypotheses” He suggested an
and higher in terms of Masculinity. On
empirical test to be performed using
this basis, Baydour and Willett conclude
independent data on financial disclosure
that it would appear that Lebanon’s
prepared under IFRS, as the dependent
requirements are for less Uniformity,
variable, against Hofstede’s (1980) index
Conservatism and Secrecy in financial
score as the independent variable among
reporting practices.
IFRS jurisdictions. This research could
However,
Lebanon
framework
level.
potentially
According to Doupnik and Tsakumis
(2004),
accountants
from
different
cultural groups may interpret and apply
accounting
and
auditing
standards
has
However,
make
a
raised
empirical
significant
contribution toward better understanding
the role and influence of culture in
contemporary international accounting
practice.
differently even though the standards
have been consistently adopted across
these groups. An understanding of how
culture affects the interpretations and
judgments
of
Hofstede-Gray framework
The study of cultural relativism in
accounting has relied heavily on Gray’s
would,
(1988) accounting value dimensions that
therefore, contribute to the efforts of
represent the accounting sub-culture.
reducing de facto diversity in accounting
Gray postulated the existence of an
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accountants
IV.
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International Journal of Management Sciences and Business Research
Volume 1, Issue 10 -2012- ISSN (2226-8235)
accounting sub-culture within the larger
country level, and the second two relate
society. He then hypothesised a set of
to the measurement and disclosure of
accounting values held by members of
accounting information at a country
the accounting sub-culture that were
level.
derived from Hofstede’s (1980) workrelated
national
cultural
values.
However, the Hofstede-Gray framework
of the influence of culture on accounting
practice
has
been
argued
to
be
conceptually inadequate to explain the
depth,
richness and
complexity of
culture (Gernon & Wallace, 1995; Chow
et al.,1999; Harrison & McKinnon,
1999).
There
is,
therefore,
an
opportunity to explore an alternative
approach to the conceptualization of the
accounting sub-culture
so
that the
influence of culture on accounting
practice
can
be
more
effectively
Gray (1988) extends Hofstede’s model
by overlaying accounting values and
systems and their links to societal values
and institutional norms. Gray believes
that accountants’ value systems are
related to and derived from the unique
societal values in each country. He
concluded that accounting values, affect
accounting systems and cultural factors
directly influence the development of
accounting
and
financial
reporting
systems at a country level (Doupnik &
Tsakumis, 2004).
explained.
V.
Conclusion
Gray (1988) identified four accounting
Gray introduced four propositions that
value dimensions that can be used to
hypothesis
define a country’s accounting sub-
Hofstede’s cultural dimensions and his
culture: professionalism versus statutory
accounting
control; uniformity versus conformity;
argues that shared cultural values within
conservatism versus optimism,
and;
a country lead to shared accounting
secrecy versus transparency. The first
values, which in turn influences the
two dimensions relate to authority and
nature of a nation’s accounting system
enforcement of accounting practice at a
(Doupnik & Tsakumis, 2004). But Gray
relationships
value
between
dimensions.
Gray
never tested the hypothesis empirically
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International Journal of Management Sciences and Business Research
Volume 1, Issue 10 -2012- ISSN (2226-8235)
to support his framework. We suggest
relevance and suggestions for
that an empirical test is performed to test
future
the relationships between Hofstede’s
Accounting Literature, vol. 23,
cultural
pp. 1-48. Retrieved January 14,
dimensions
and
Gray’s
accounting value dimensions.
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Journal
of
2008, from
[4] Fechner, H. and A. Kilgore.
We recommend a mail survey to be
(1994). The Influence of Cultural
carried out on accountants in China to
Factors on Accounting Practice.
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The
their
attitudes,
beliefs
and
opinions about their motivational goals,
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[5] Finch, N. (2009). Towards on
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of
Cultural
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